Oil stocks look tasty, but expect the virus to have a long tail


It appears energy names were on the rise on Wednesday, largely dominating a local market weighed down by weak US prospects and possibly boredom.

But don’t thank our collective refusal to recognize global warming. In this case, oil prices rise in the face of – and because of – the favorite cartel of all of the world’s major oil producers.

Yes, OPEC + – this highly combustible and hopelessly wary coalition of the Organization of the Petroleum Exporting Countries and a cohort of Russian-led oil producers – have agreed to stay the course on their collective 400,000 increase. barrels per day of monthly production for February.

The largely predictable bet made early this morning Sydney time to continue pumping more crude rests on the likelihood that Omicron will not dampen demand in the same way that previous waves of Covid have driven oil prices down. .

The group agreed last year to increase production in increments every month until production reaches pre-pandemic levels, but revises the policy every month in case more money can be made with it. an adjustment here or there.

After pausing to digest the reflection, Brent crude jumped 2% as US crude closed near a six-week high.

But why do prices increase with increasing production?

Well, last year gross posted its biggest annual gain in value since the release of Lady Gaga’s unexpected horror pop mashup, Poker Face (watch it) – and with lockdown fatigue at its most. high level right now, the shrewd cartel knows when more is less and more is more. In this case, the latter.

Ahead of the morning meeting, OPEC’s technical committee reduced what it estimates to be the global gross surplus for the first three months of the year by about 25 percent, calling omicron’s impact a “Light” and “short-term”.

Meanwhile in the United States, there are already a bunch of growers struggling to meet their quotas, a gap that OPEC + is more than willing to face.

Fear and panic

“On the contrary, the fear and panic of a month ago over the widespread disruption and the hit to the recovery in demand have now subsided, giving OPEC + greater confidence to continue to increase demand. supply, ”said Singapore-based Vandana Hari, founder of energy analysts Vanda Insights.

Here is his short-term assessment of oil prices:

  • After surging in reaction to OPEC + confidence in rebounding demand, crude will remain in recalibration mode
  • Growing hopes that the Omicron will be far less destructive than initially feared must be balanced with governments maintaining a cautious stance and not yet showing signs of easing the new restrictions introduced ago. more than a month
  • The positive account of Omicron’s low virulence will struggle to gain attention, especially in the West, as policymakers and health experts are keen to push their vaccination and vaccine booster campaigns.

And in the medium term:

  • We see a long tail of Covid
  • So even now it looks like the pandemic will remain a primary influence on the oil market in 2022.
  • The momentum of the global economic recovery is expected to slow
  • The pent-up demand that has fueled consumer spending from the second half of 2020 through 2021 is expected to run out of steam
  • This will be facilitated by persistent inflationary pressures, weakening a key element of growth

Here are the local small caps up to the occasion:

At the top of our rankings with no news, Bass Oil may well have benefited from existing oil production from its operations in Indonesia.

The company recently reported production of 5,722 barrels of oil in November and has said it is close to finalizing the acquisition of three untapped Cooper Basin assets, including a 30% stake in the oilfield. Worrior in production and other acreage from Cooper Energy.

Also in the news, Pancontinental owns a popular area with two high-impact wells that Shell and Total are drilling separately in the Orange Basin off Namibia.

Successful drilling of one or both wells will significantly increase the prospectivity of the Company’s Saturn petroleum area in PEL 87.

Adding to the list of oil companies with no news, 88 Energy remains on track to dig its Merlin-2 appraisal well in February.

This follows Merlin-1, which has demonstrated the presence of oil in several stacked sequences in the Brookian Nanushuk formation and targets 652 million barrels of oil.

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Steve R. Hansen